See proposed improvements to strengthen the NZ ETS framework so that it is a credible and well-functioning scheme that helps us meet our climate change targets.

How the NZ ETS works

The NZ ETS puts a price on greenhouse gas emissions. This price on emissions is intended to create a financial incentive for businesses who emit greenhouse gases to invest in technologies and practices that reduce emissions. It also encourages forest planting by allowing eligible foresters to earn New Zealand emission units (NZUs) as their trees grow and absorb carbon dioxide.

The NZ ETS requires all sectors of New Zealand’s economy to report on their emissions and, with the exception of biological emissions from agriculture, to purchase and surrender emissions units to the Government for those emissions. Just over half of New Zealand’s greenhouse gas emissions are covered by NZ ETS surrender obligations.

An emission unit represents one metric tonne of carbon dioxide, or the carbon dioxide equivalent of any other greenhouse gas. Currently, the only eligible emissions unit in the NZ ETS is the New Zealand Unit (NZU).

Diagram 1: Simplified illustration of how NZU trading can take place

For further information about how the New Zealand Emissions Trading Scheme (NZ ETS) is designed and how it operates (a snapshot as at July 2018), see here. This document describes the core design features of the system, examines how and why the design features have evolved over time and explains how the NZ ETS works.

Impact on households and businesses

The NZ ETS does not require households to surrender emission units. However, households feel some of the effects of the scheme as the businesses that are involved pass NZ ETS costs on to consumers.

The point of obligation in the NZ ETS (ie, the participant in the scheme) is as far upstream in the supply chain as possible. This means most businesses in New Zealand are not required to be participants in the NZ ETS.

For example, for transport fuels the obligation is placed on the companies importing the fuel, rather than on the end user. This makes it possible to cover the whole sector without trying to directly target the millions of private cars in New Zealand.

2015/16 review of the NZ ETS

The Government recently concluded the 2015/16 review of the NZ ETS and agreed in principle to a package of four proposals that will improve the NZ ETS. The review assessed the operation and effectiveness of the NZ ETS in light of the Paris Agreement and New Zealand’s 2030 emission reduction target.

Proposed improvements to the NZ ETS

The Government is proposing improvements to the NZ ETS to strengthen the ETS framework so that it is a credible and well-functioning scheme that helps us meet our climate change targets. Find out more information.